Question 4

Frank Plc received a grant in the sum of 200,000 in 2015 as a contribution towards the 600,000 paid for plant and machinery purchased in 2015. The machine has a life expectancy of 5 years.

The Financial Director of Frank Plc has asked for your advice in respect of why it is necessary to distinguish between research and development expenditure and how this distinction affects the accounting treatment.

Requirement:

1. Calculate the amount of annual depreciation charge to be shown within the depreciation expense shown in the 2020 Income Statement.

2. Write an explanation of the accounting standards approach in relation to research and development expenditure addressing the Financial Directors concerns. (maximum word count 120 words)